7 Things You Need to Start Doing to Build Good Financial Habits
Whether you want to pay off debt or save for a family vacation, you start by forming good financial habits.
“Out with the bad, in with the good.”, or so we say when we need to have better habits.
The fact is that personal finance is not complicated; with the right tools and willingness to learn, we can start forming good financial habits right away.
Whether you want to pay off some debt, achieve financial freedom, or save for a family vacation, it starts with forming good financial habits.
To help you get started, here are seven simple things you can do to start building good financial habits.
Read also: 7 assets that will make you rich
#1. Simplify your financial accounts
Do you need multiple checking and savings accounts and numerous retirement accounts?
Most likely, you don’t, unless you own your own business; in that case, you need to separate your business and personal accounts.
Before you can sort out your finances and automate bill payments, you need to have the proper foundation.
Unless you need it (and you shouldn’t), have 1 checking account and one savings account.
That way, your income flows to your checking account, then use that account to pay your bills and automate your savings by automatically
#2. Automate your savings
Saving money is hard, especially if you’re living paycheck to paycheck and trying to pay off debt.
You’re in trouble if you don’t have enough savings to cover 3–6 months’ worth of monthly expenses!
The best way to save money without even thinking about it is to automate it.
You get paid every other Friday and set up a transfer from your checking account into your savings account the Saturday after payday; that way, you know there’s money in the checking account.
Start by saving whatever you can, even if you can only save $50 every other week; that’s better than nothing, then gradually increase it as you become more financially savvy and understand your finances better.
The best thing about this method is that it helps you prioritize your savings, reduce the temptation of spending that money, and helps you form good financial habits.
#3. Live within your means
Social media is terrible for people that care too much about appearances and keeping up with others.
Trying to keep up with people, or as some like to call it, “keeping up with the Joneses.”, is probably one of the dumbest things you can do when it comes to your finances.
Why would you jeopardize your future to flash for people you probably don’t even like?
Living within your means is prioritizing what’s important, paying your bills, saving, investing, and if there’s money left over, you can use it for entertainment and other things.
If you have a large purchase coming up, don’t wait until you need to make it; start stashing away money and pay it cash.
#4. Invest your money now so that you can enjoy it later
I keep coming across countless articles about how little people have saved and invested for their retirement.
From baby boomers to millennials, it turns out that collectively, we haven’t done a great job at investing for the future.
It is time to break the cycle and change that; just like automating your savings, you should also be automating your investment, prioritizing it, and not getting tempted to spend the money.
If you have a 401k at work, you should be investing as much as possible, especially if your employer matches. Please don’t leave any money on the table; take advantage of what they match.
If you don’t have a 401k, find a financial advisor that is a fiduciary (a financial advisor that is required to keep your best interest in mind), and put together a plan that you can go and execute.
#5. Adjust the billing cycle of your expenses
I’m surprised that more people don’t know that you can call and ask to have your billing cycle adjusted; it’s a great way to help you budget and plan your expenditures.
For example, if you pay your mortgage on the first of every month, you should reach out to your car insurance company (or any other sizeable monthly expense) and ask them to adjust your billing cycle to a later date.
That way, your more significant fixed expenses are spread out, which helps you budget and manage your money more effectively.
In corporate finance, this is how you manage your cash position; you optimize your income and expenses so that you always have the most cash available.
Read also: 5 key lessons for financial self improvement
#6. Consider level-paying your utilities
Truth be told, this is something that I recently learned about, and it could make sense for many people.
Budgeting can be challenging, especially when you have unexpected utility bills such as a high gas bill during the winter or a high electric bill during the summer.
In places like South Florida, where it could be 75 degrees in the morning and 95 in the afternoon, it is challenging to forecast your fixed expenses.
As it turns out, utility companies allow you to level-pay your bill to keep your utility bill predictable, and this is a great way to forecast how much money you will need to cover all fixed expenses for the year.
What is level pay? In a nutshell, it is when utility companies allow customers to pay approximately the same amount for their utility service every month.
For example, a customer could pay a lower amount than their actual bill amount during the high-bill summer months but then make higher payments during the low-bill winter months.
#7. Review your spending every month
As an accountant, reviewing monthly financials, recalibrating forecasts, and making adjustments is a monthly endeavor.
In my personal life, it is a must. I should be able to account for every penny spent during the month, and so should you.
To keep it simple, use a spreadsheet to track all your monthly expenses; you can find a free personal budget template online to help you budget for an entire year.
Surprisingly, you’ll probably find that you’re spending more than you think in certain areas. For example, those morning coffees, work lunches, and happy hours might be costing more than you realize.
Get in the habit of reviewing your income and expenses every month, be brutally honest with yourself, and question every expenditure that you did not include in the budget.
A few simple adjustments to your finances can have a substantial financial impact on your future.
Don’t make the mistake of kicking the can down the line; implement these simple tips right now, and you will be on your way to forming good financial habits!
CONTRIBUTED BY Yosniel (Joe) Romero
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